TVS, GMR warm up to family governance

Bhanu Pande & Amanpreet SinghMar 4, 2007, 12.00am IST

NEW DELHI: Call it a marriage of convenience. Even as India Inc grapples with frosty succession battles (read the recent sibling squabbles in companies such as Reliance and Bajaj Auto), business houses are increasingly warming up to the idea of family governance. And for obvious reasons: there are great synergies in marrying family values with business interests.

The young turk of the Dalmia group, Puneet Dalmia, captures the family business zeitgeist perfectly when he says, "It is the coming together of two different ecosystems. A family is governed by social values whereas a business requires capitalistic ones."

Small wonder then, that when Dalmia discovered family governance on one of his trips to IMD, a B-school in Laussane, Switzerland, he thought it would benefit his family. It did. It opened a new channel of communication. Indeed, the term 'family governance' — which is fast gaining currency globally, especially in Europe where generations-old family businesses abound — has set foot in India.

Prof John Ward, Kellogg School of Management, the world's foremost authority on family governance, has already assisted the Dalmia group, Murugappa group, TVS group and GMR. There are many other business families ET contacted, who want to keep their family governance initiatives close to their chest. Some others have settled for an informal structure based on inputs from management gurus such as JK Organisation, RPG Group and DSCL.

For R Haresh, Joint MD, TVS & Sons, ideas of family governance took root a decade ago when he attended a programme similar to Dalmia. For the past eight years, starting under the leadership of M VSubbiah of the Muruguppa group, Haresh has been putting together an annual Confederation of Indian Industry (CII) programme on family business with Prof Ward as the anchor faculty, sensitising business families on family business issues.

According to Prof Ward, a century ago, some Asian and European families created "house rules" for topics such as working in the family business, marriage, inheritance, public visibility as well as articulating their core values.

"Currently an increasing number of families in India and across the globe are actively writing down their principles and policies. They are aware of a comprehensive framework to anticipate their future needs," says Prof Ward. Globally, Puegeot, NewYork Times, Cargill and the Ford family, to name a few, have family governance structure in place.

Recently, the Kasliwal family embarked on such initiatives to put a formal structure in place whereby responsibilities are divided among its five brothers. Sources say this is meant to ensure that issues don't emerge among them later which could hurt the businesses.

Similarly, Apollo and Godrej Group have understandably divided the responsibilities amongst siblings, albeit informally without codifying them. JK has been drawing a lot of inputs from the likes of Prof Krishna Palepu of Harvard Business School.

According to G M Rao, chairman, GMR Group, the reasons for break-up of the family business are common irrespective of the country and nature of business. "Only those families that have put in place mechanisms to pre-empt conflict and, robust disagreement resolution systems, have survived. It is important to address these issues in the life-time of the founder itself so that the business survives and grows over generations," says Rao.

Adds Anil Sainani, a family governance advisor, who has worked alongside Dalmia Cement and GMR, "The early awareness created by industry bodies like CII and events show that the family governance is gaining currency as a concept. This is also evident from the fact many B-schools have commenced modules on family governance."

The GMR group has instituted a family constitution that lays down the principles, processes, and policies on all family and business matters. These include resolution of differences, consensus decision-making, code of conduct, media policy, jobs for family member of future generation based on merit and others.

The company says it has separated family wealth and business wealth, too, with the equity of the family corpus being held in an investment company called the GMR Holding Private.

For the Dalmia group, family governance started with a three-day lecture at the ISB. Eight family members, including spouses, attended the course and finally put together a three-pronged strategy.

First, to put a policy in place before the need arises so as not to colour perspectives when an occasion comes to head. Second, run the family on social principles and the business on capitalist ones to avoid any conflict.

Third, put in place a forum for structured communication which includes a family council meeting once a month. The result, the family understands each other with "incredible ease."

"Business families have woken up to reality that family issues are here to stay and they are conscious of the fact that they need to address that. While some are putting a formal structure in place, many are doing that within themselves," says Rajeev Memani, managing partner, Ernst & Young.